The human brain is postulated to function as a prediction machine, constantly comparing incoming sensory input to predictions based on past experiences. When an event contradicts these predictions, it results in a prediction error (PE), which has been shown to enhance subsequent memory. However, the neural mechanisms underlying the influence of PE on subsequent memory remain unclear. This study investigated the electrophysiological correlates during encoding and retrieval of events eliciting PE. We employed a statistical learning task in which participants were presented with pairs of objects in sequence. Subsequently, while recording electroencephalography (EEG), we introduced PE by replacing the second object of each pair with new objects and we then tested the participants’ memory. Behaviorally, PE did not enhance memory. During retrieval, we observed higher amplitudes of the posterior recollection component for violation items that were remembered compared to those that were forgotten. In contrast, no evidence for the presence of the frontal negative familiarity component was found. These results suggest that recollection, but not familiarity, plays a crucial role in the interplay between PE and memory. Contrary to our hypothesis, we did not observe a relationship between PE and the P3 component during encoding. In conclusion, our study contributes to the growing body of knowledge concerning the intricate relationship between PE and episodic memory. It sheds light on the underlying neural mechanisms involved and emphasizes the importance of recollection in this context.